A multifamily operator in Houston recently lost 3,200 units to foreclosure.
Is that a sign of calamity to come? Or can we learn from their mistakes and ask better questions before we invest in our next syndication?
On this episode of Financial Freedom with Real Estate Investing, I walk you through nine important questions to ask before you invest in your next multifamily syndication.
I explain why not-so-good operators (what I like to call NSGOs) are struggling in the current multifamily market and how to differentiate an NSGO from a capable one.
Listen in to understand why it’s a mistake to sit on the sidelines until the real estate market changes and learn how to find great deals right now for pennies on the dollar!
Key Takeaways
Why NSGOs are struggling in the current multifamily market
- Rapid raise of interest rates squeezed out remaining cashflow
- Distributions for LPs slowed or stopped entirely
- No choice but to sell for pennies on dollar
What the high cost of interest rate caps means for investors
- Can refinance if property performing very well
- Otherwise must use construction budget or sell at loss
9 questions to ask before you invest in your next multifamily deal
- Does debt you’re using match proposed business plan?
- To what extent is property cashflowing from Day One?
- Do you have enough reserves? (going into deal & replacement)
- Does construction budget support business plan?
- How conservative are underwriting assumptions?
- Is right team in place to operate property successfully?
- How will you take care of tenants?
- How are GPs going to educate LPs about investment?
- How well does GP communicate with investors?
How to assess conservative vs. aggressive underwriting assumptions
- Vacancies
- Rent projections
- Interest rates
- Cap rates
Why it’s a mistake to sit on the sidelines right now
- Opportunities for discounted deals and NSGOs who must sell
- Fundamentals of multifamily have not changed
- Adjust underwriting assumptions for current environment
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Resources
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Financial Freedom with Real Estate Investing by Michael Blank
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